Bond Report: Treasury yields tick lower ahead of ECB policy update, as virus rattles Asian markets

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U.S. Treasury yields staged a modest retreat on Thursday as investors awaited the European Central Bank’s policy decision, but also kept an eye on the spread of coronavirus that rattled investors in Asia and drove haven inflows into government bonds.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -1.82%   was down 1.9 basis points to 1.752%, while the 2-year note rate TMUBMUSD02Y, -0.54%   edged 0.6 basis point lower to 1.520%. The 30-year bond yield TMUBMUSD30Y, -1.69%   slipped 2.3 basis points to 2.196%, around its lowest levels in more than six weeks.

What’s driving Treasurys?

The European Central Bank is set to announce the outcome of its policymaking meeting on Thursday, but is expected to stand pat and keep its benchmark deposit rate at negative 0.5%.

But economists say there remains potential for ECB President Christine Lagarde to take a more hawkish tone at the post-meeting news conference amid growing worries in the central bank’s ranks over the dangers of keeping interest rates negative for a prolonged period.

See: Why investors can’t afford to sleep through this week’s ECB meeting

Asian stocks felt the brunt of the panic around the coronavirus’s spread, following the decision by Chinese officials to prevent the departure of residents in the city of Wuhan, where the pathogen had originated. Though the risk-off tone was not shared to the same extent by U.S. equities, Treasurys were buoyed by the uptick in demand for haven assets.

China’s stock-market benchmark CSI 300 000300, -3.10%  index slumped more than 3% on Thursday, while Hong Kong’s Hang Seng index HSI, -1.52%   shed 1.5%. Futures for the S&P 500 SPX, +0.03%   and the Dow Jones Industrial Average DJIA, -0.03%   point to a modestly lower open for the major indexes.

Investors will also digest some economic data in the morning. Weekly jobless claims will arrive at 8:30 a.m. ET, along with the Conference Board’s December report of leading economic indicators later at 10 a.m.

What did market participants’ say?

“Increasing concern over the spreading of the Chinese virus continues to impact markets with equities down over 3% in the region overnight. The U.S. Treasury market is firm on the move lower in risk assets,” wrote Gregory Faranello, head of U.S. rates at AmeriVet Securities.

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